The Hindu Business Line : Private equity funds upbeat on healthcare cos

THE Indian healthcare industry has become the cynosure of private equity investors. Private healthcare providers such as Fortis, Apollo, Max, Wockhardt and Dr Batra's Homeopathy Clinic are being serenaded by funds wishing to invest in these companies.

Mr Daljeet Singh, CEO — Operations — Fortis Healthcare Ltd, said, "A large number of private equity investors have shown interest in equity participation in Fortis. Currently, there are several financing options available to Fortis for going forward."

Max Healthcare said that the private equity fund Warburg Pincus is happy about its Rs 25-crore investment in the company and is interested in more. Recently, Maxwell Mauritius, a wholly-owned subsidiary of Singapore-headquartered Temasek Holdings, and One Equity Partners, the private equity arm of JP Morgan Chase, invested $7.5 million in Apollo Health Street, an Apollo Group company offering BPO and IT services to US-based physician groups.

According to Mr Vishal Bali, Vice-President Operations, Wockhardt Hospitals Ltd, "The healthcare industry is a maturing industry and private investors are seeing long-term value in picking up stakes in such companies."

Endorsing this, a spokesperson for Temasek said, "We believe that Apollo Hospitals Enterprise and Apollo Health Street are attractive investments with good domestic and regional growth potential. These investments reflect our positive outlook on the prospects for Asia as a whole and India in particular. We are optimistic about the growth potential of the healthcare sector in India as part of our overall positive view of Asia's opportunities. We remain open to opportunities that allow us to participate in companies or sectors that are a proxy for India's growth."

Another reason is that India is emerging as an important healthcare destination for the West. "It is certain that India will attract a large number of international patients. A McKinsey report projected that over Rs 1,00,000 crore needs to be invested in healthcare infrastructure by 2012. Of this, over 70 per cent investment will be by the private sector. There is optimism that the healthcare sector, once corporatised, will be managed effectively and hence provide long-term returns to its shareholders. The private equity investors recognise this and wish to invest in this emerging sector when the entry costs are still low," said Mr Singh.

However, analysts said that the healthcare business is not only capital-intensive, but also has large gestation periods. ICRA said in a report, "In-patient medical care is a capital-intensive business. Given the predominance of debt financing in hospitals, the capital-intensive nature reflects on the relatively high interest cost. The cost structure tends to be relatively fixed in nature and these, coupled with interest and depreciation, make sustaining occupancy levels critical for financial stability."

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